The Tuition Tax: Robbing Peter to Pay Paul

[Updated: After posting the note below, I was advised that the city already has a tax on local income received by non-resident professional athletes. Here's a link. What I'm talking about below is related, but perhaps a little different. The existing rule is a form of income tax. (Of course, it should be possible to raise the rate and increase the $2-$3 million already generated annually.) What I'm talking about is the same kind of "usage fee" or "service fee" that is the conceptual driver behind the "tuition tax."]

This morning's PG editorializes that the proposed "tuition tax" on Pittsburgh college students isn't a great idea -- but the PG, like the mayor, can't think of any other solution to Pittsburgh's pension deficit. The underlying problem, according to the PG, is that "Harrisburg" won't solve Pittsburgh's pension problems, and Pittsburgh doesn't want to let Harrisburg take over the pension system. (Why the paradox in that statement is ignored still puzzles me.)

But there are other solutions.

Here is one:

Who is better able to afford paying an extra sum per year for the privilege of enjoying all the amenities, services, and privileges afforded by the City of Pittsburgh? College students, or professional athletes?

Don't enact a "tuition tax." Instead, enact an "amusement tax": Every pro athlete who competes in Pittsburgh, including both Steelers, Pirates, and Penguins and players visiting teams -- full active rosters, whether or not they play a particular game -- could pay a very modest percentage of his annual income (salary plus prorated bonus plus endorsements) to the City of Pittsburgh. Athletes already pay a pro-rated income tax to states where they compete as visitors, so the concept of local taxes isn't foreign. Given the number of athletes, the number of games in Pittsburgh in each sport, and the amount of money needed ($15 million per year for the pensions, plus a $1 million in pocket change for the Carnegie Library system), it shouldn't be too difficult to come up with an appropriate tax rate.

Would this embolden other cities with pro sports teams to do the same? Sure. I think that pro teams generally take more than they give from their host cities as it is.

Would this serve as a disincentive to pursue a career as an athlete rather than a career in some other field? Maybe. I think that a little disincentive to be a pro athlete, and some incentive to do something else, would be great.

In case it seems to overreach to cover the whole $16 million gap by taxing athletes, we might collect, say, half the money from pro athletes and half the money elsewhere.

Just the other day, according to the paper, "The Rivers Casino will pay its $7.5 million a year toward construction of the new arena in two installments under an agreement approved by the city-Allegheny County Sports & Exhibition Authority board." What if the Sports & Exhibition Authority board sucked it up for the good of the city, its libraries, and its college students, and agreed to turn that money over to the mayor? Obviously, that would leave the arena looking for cash, and Pens fans and other prospective attendees of arena events would scream foul. But who is better able to bear the cost (and should bear the cost) of arena construction? Those who will use the arena, or ...

It's a borrow-from-Peter-to-pay-Paul situation regardless of how you add it up. The only question is who is going to be Peter, and who is going to be Paul.

Comments

13 Responses to "The Tuition Tax: Robbing Peter to Pay Paul"

AMO said... 11/11/2009 11:29 AM

aka the "Jock Tax":
http://en.wikipedia.org/wiki/Jock_tax

There is an honest solution to the pension problem: bankruptcy and the voiding of contracts. I say "honest" because by any straightforward accounting the city is bankrupt. There should be some aspect of counterparty risk inherent in municipal agreements; Pittsburgh is no longer the world's steel capital and one of the largest cities and producers in the country. The current city may be on the same physical grounds, but it is not the same city those contracts were signed with.

Another solution is a city/county merger and state bailout, this is what Indianapolis did, I believe.

A less honest solution is to keep stringing along, doing the minimum necessary, and hoping for some kind of federal municipal pension bailout (after all, virtually every big city is in pension trouble and the cost required to save them is pretty small relative to what we're up to already). Moral hazard? Why not.

Anonymous said... 11/11/2009 6:17 PM

I think the fastest way out of the pension problem is to charge a "competitive tax" to the Pirates for every season they finish under .500. It's predictable and sustainable, and it would come from their significant luxury tax payment they receive from the overspenders in baseball each year.

The Pirates claimed that if the city/county funded a new ballpark it would make them competitive. It hasn't. Such a tax would compensate Pittsburgh for how the Pirates make Pittsburgh less competitive, by reducing the city's tax revenues, image, and quality of life.

It's interesting that the academic institution leaders are saying this proposed tuition tax would make their institutions less competitive. I don't like the tax idea, but they could give a more credible and less predictable argument than that worn out one.

Kevin said... 11/11/2009 11:04 PM

The tuition tax must be Lukey's own special idea, because I can't imagine any thinking grown-up advising him to go forward with it. Since it's a tax, the State Legislature must approve it--I don't see that happening. Since the students are attending non-profit institutions the whole idea might be unconstitutional. Did he run it by the City Solicitor before he proposed it?

His original idea, while generating less revenue, seemed more sensible to me--a flat fee charged on all students living in residence halls. First, it's a fee, so perhaps not subject to as much scrutiny by PA. Second, the students living in the dorms really don't pay for City services--so it is, on the face of it, fair. Taxing all students, however, isn't. Students living in apartments pay for City services through their rents, a portion of which landlords then use to pay property taxes. Commuting students who live with their parents in the City--well, it obvious their parents are paying property and wage taxes and the students are paying wage taxes on their part-time and summer jobs. Commuters from outside the City are getting off without contributing, but there really aren't all that many of them.

C'mon Luke, talk to some grown ups and see if you can do better--how about talking to Chris Briem?

Anonymous said... 11/12/2009 2:26 PM

@Kevin- Do you really think that dorm students don't pay for City services? As a Carnegie Mellon student, I can tell you that living in the dorms is more expensive than living in an apartment and some of that money certainly goes towards City services. It just doesn't go there directly. CMU still has to pay taxes on those residences.

Kevin said... 11/12/2009 8:57 PM

@Anon-CMU and Pitt and Carlow and Chatham and Point Park and Robert Morris (Downtown Center) and the Pittsburgh Theological Seminary and... am I leaving anyone out?... are all non-profit and thus tax exempt. They don't pay property taxes. That's what this whole argument is about. Pittsburgh has so much land occupied by tax exempt schools and hospitals that the property tax base is too small to pay the bills. Read the Post-Gazette sometime for more information on this. In fact, Brian O'Neill's column today addresses the tax issue and metropolitanism.

Just to be clear, the tuition tax and the dorm bed fee are both really bad ideas, but in my eyes the dorm fee is just slightly less bad than the tax.

Miller said... 11/13/2009 3:12 PM

Does Ravenstahl calling education a privilege harken images of the Jim Crow South to anyone?

Kudos to Madison for trying to come up with a different idea, but anything that can be construed as a 'disincentive' is unsavory.

I'll take Ravenstahl seriously the minute he proposes some spending cuts instead of new, illegal (or superficially legal backdoor), taxes. And we are supposed to think the expensive 'green initiatives are worth it?

rich10e said... 11/15/2009 6:35 PM

Miller..get a grip...cut spending..to what negative $$$.....???? This is a bare bones budget..there isn't any fat left...as for the student tax....1% amortized over a 10/15 year student loan repayment is a drop in the bucket....I live in South Oakland...the students turn the neighborhood into a huge garbage can every weekend..broken bottles,pizza boxes, garbage cans tipped over, refuse spilled everywhere, gangs of drunk students roaming the neighborhood til all hours of the night screaming yelling and generally acting like fools....they tear down the quality of life in the community...and you can't place a figure on that.....!!!

Sean said... 11/17/2009 6:39 PM

I would completely support a City/County merger. In fact, I would go so far as arguing for the elimination of the Allegheny County Government. They are pure overkill, let the City run the City, and the municipalities run themselves. Why do we need a police force to cover the county, when every part of the county is already covered by their own police force? Give the money saved from that to the City, and see where we are then.

And also, it seems to me that a 'jock tax' would do nothing more than raise the cost of legally-purchased tickets, as owners simply pass the cost on to the consumer. You think an amusement tax would really come out player's salaries? When salaries are already trimmed because of salary caps (besides baseball, anyway)?

Team: "Ok, come play here because we're going to pay you $X/year, which is barely competitive with other franchises. Oh, and btw we're going to take $X from your paychecks to pay a tax, which reduces the total salary you'll make to below the competitive offer that other teams are making for you."
Player: "No thanks."

Anonymous said... 11/18/2009 1:58 PM

Mike,

Nice try, the only problem is the US constitution. Three constitutional provisions, the Privileges and Immunities Clause, the Commerce Clause, and the Equal Protection Clause, generally invalidate differential tax rules for nonresidents (eg, nonresident athletes visitng or working in Pittsburgh for part of the year).

Mike Madison said... 11/18/2009 4:56 PM

Check your Constitutional Law materials a second time. Make the fee applicable to all pro athletes (including those who live and compete for the home teams!), and condition it on use of the facilities. Everyone who plays in the facilities pays the fee.

Would it raise the cost of tickets, if teams paid the fees for their athletes? Maybe. Is that a bad thing in the abstract? Probably. But the question isn't whether any given fee or tax is a bad idea in the abstract; the question is whether any given fee or tax is a bad idea when compared to something else.

So: Who should pay to close the city's budget deficits? College students, or pro athletes and their fans?

Non-Yinzer Pittsburgher said... 11/19/2009 1:03 PM

well.. the "Yinzer Caucus" on Council is apparently voting for the tuition tax... giving Luke's plan a 5-4 victory (Harris, Smith, Motznik, Payne, Burgess).

Anonymous said... 11/19/2009 8:06 PM

How is it possible that five of our elected representatives have announced how they intend to vote when the public forums haven't occurred yet?!? Are they honestly saying that regardless of what their constituents say in the upcoming meetings they have already made up their minds? Politics at its worst.

Anonymous said... 11/22/2009 9:24 PM

Let the predominately liberal student base enjoy a bit of taxes. Since everything is a right, they have the right to pay taxes for their education as well.

I for one welcome our new taxing overlords, comrade.

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Pittsblog 2.0 is written by Mike Madison, a law professor at the University of Pittsburgh. Send email to michael.j.madison[at]gmail.com. Mike also blogs at Madisonian.net, on law and technology. Chris Briem of Null Space drops by from time to time.

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